Blog Article | Thomas Lee
Posted: October 30, 2018

The opening salvo between Uber and Amazon: restaurant deliveries

You knew it was coming.

In recent years, the two would-be combatants have been warily circling each other, testing each other’s defenses, not willing to directly engage. The company that perfected and dominated e-commerce vs. the company that invented the on demand workforce economy.

Earlier this year, Uber CEO Dara Khosrowshahi told a Goldman Sachs conference in San Francisco that “cars are to us what Amazon is to books.”

But the situation is much more complicated than that. Uber has been rapidly growing its delivery business. And Amazon this year launched its Amazon Flex program, which seeks to recruit on demand drivers to transport its packages. Amazon Flex already boast service in more than 50 cities in the United States.

An Amazon/Uber clash to control the “last mile” of deliveries, be it food or packages, appears inevitable. In fact, it’s already started with the restaurant business. Both companies are trying to partner with restaurants to deliver food to consumers and businesses within an hour or so.

Do restaurants want to work with a potential competitor?

At first glance, by sheer size and scale, it would seem Amazon holds the advantage. The company normally overwhelms its opponents by offering consumers low prices or “free” services as part of its formidable Amazon Prime program. For annual fee, consumers already get free shipping, original film and television shows, and subscriptions to Washington Post and magazine. So free restaurant deliveries are just more icing on a really big cake.

Once consumers are hooked, Amazon will eventually charge a delivery fee, blogger Vanessa Page recently wrote for Investopedia.com.

“Amazon is taking over the restaurant delivery industry the same way it took over the book-selling industry,” Page said. “By partnering with restaurants to ensure quality food delivery and by providing the service for free, Amazon will drive its competitors out of business.”

“With existing infrastructure making the delivery service only marginally more expensive for Amazon, the eventual delivery fee that Amazon will institute will be a high-margin addition to its bottom line,” she wrote.

But others are not so sure. Burt Flickinger, a prominent retail consultant and managing director for Strategic Resources consulting firm in New York, said Amazon’s success depends on signing up restaurants.

Given what Amazon has done to the publishing industry along with other retail categories, local, family-run restaurants that make up most of the market might not want to partner with a potential competitor and give up their valuable data, Flickinger told me. He noted that Amazon owns Whole Foods, which offers an extensive collection of freshly prepared meals.

By contrast, Uber is not a direct competitor to restaurants and offers the best on demand transportation infrastructure, he said. In addition to cars, Uber also offer deliveries by scooters and bicycles. Amazon is new to recruiting such drivers.

Uber has also launched innovative partnerships with restaurants to offer “virtual restaurants” from brick and mortar locations— a restaurant within a restaurant. For example, in New York, Gerizim CafĂ© & Ice Cream operates “Brooklyn Burger Factory” exclusively online. Venezia Pizza & Lounge in Miami Beach operates “MIA Wings” from its kitchen.

Today, Uber works with 1,600 virtual restaurants around the world in 300 cities, most of them in the United States.

Both companies are developing new transportation technologies: Uber with self driving cars and Amazon with drones. But Uber holds an advantage in that autonomous vehicles enjoy more regulatory progress than drones, especially when operating in dense urban areas.

To justify valuation, Uber needs restaurants more than Amazon does

In the end, the edge goes to Amazon because the company is so diversified that it can afford to be patient. For Uber to justify its big private valuation and likely sizable IPO, the company needs to expand into other businesses and industries beyond ridesharing.

And Wall Street is not likely to offer Uber the same patience it had for Amazon to turn a profit, said Brittain Ladd, a retail consultant and former strategy executive with Amazon.

“Amazon created innovations that allowed it to expand into multiple businesses, create entirely new industries,” Ladd said.

The company pioneered technology and services like warehouse robotics, cloud computing via Amazon Web Services, storage lockers, Kindle e-reader, Echo and voice activated artificial intelligence in Alexa.

That’s why Wall Street was willing to wait so long because investors saw the innovation, saw the opportunities, he said. “I don’t see Wall Street deferring to Uber” the same way, Ladd said. “Where’s the growth going to come from? Amazon wasn’t a one trick pony.”

In other words, Uber needs to succeed with restaurant deliveries much more than Amazon.



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Thomas Lee
Article Author

Thomas Lee

Thomas Lee is the Senior Writer at SharesPost. He was previously a business columnist at the San Francisco Chronicle. Lee has written for the Star Tribune in Minneapolis, St. Louis Post-Dispatch, and Seattle Times. He is author of “Rebuilding Empires” (St. Martin's Press), his book on the future of big box retail in the digital age.

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DISCLAIMER: This blog does not contain a complete analysis of every material fact regarding any issuer, industry, or security. The information contained in this blog has been obtained from sources we consider to be reliable; however, we cannot guarantee the accuracy of all such information.

None of the information contained in this blog represents an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation, or sale would be unlawful under the securities laws of any such jurisdiction.

Any securities offered are offered by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost Inc. Certain affiliates of these entities may act as principals in such transactions.

Copyright © SharesPost, Inc. 2018. All rights reserved.

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